September 29, 2008
This is the question on everyone’s mind as they ponder the new “bailout bill”, officially known as the Emergency Economic Stabilization Act of 2008. It is available for everyone to read on the Internet (all 110 pages of it), but most people are looking for answers to the most important questions: Will it pass and will it work?
Just after midnight on Monday morning, David Rogers, of Politico.com, reported that the bill (which goes to the House floor on Monday and the Senate floor on Wednesday) was still facing resistance from both the right and the left, despite the support voiced by both Presidential candidates. Republican Congressman Chris Shays of Connecticut was quoted in the article as saying that: “For this to pass, a lot of people are going to have to change their minds”. The following passage provided more light on the view of this bill from those House Republicans providing resistance to the measure:
Yet a closed-door party meeting Sunday night illustrated all the problems anew. The session ran for hours, and while Minority Leader John Boehner (R-Ohio) said he would vote for the bill, he could not predict the number of votes he would have for it, and he famously referred to the measure as a “crap sandwich” before his rank and file.
Jackie Kucinich reported for TheHill.com that earlier in the day, Congressman Mike Pence of Indiana had sent out a letter to his fellow Republicans in opposition to this bill:
The decision to give the federal government the ability to nationalize almost every bad mortgage in America interrupts this basic truth of our free market economy … Republicans improved this bill but it remains the largest corporate bailout in American history, forever changes the relationship between government and the financial sector, and passes the cost along to the American people. I cannot support it.
The opposition to the bill from the Democratic side was discussed in another Politico.com article: this one by Ryan Grimm. Grimm’s article discussed an “intense” Democratic Caucus meeting. He quoted Minnesota Congressman James Oberstar as describing resistance to the bill coming from across the complete spectrum of Democratic opinion, from liberal to conservative. California Congressman Brad Sherman had met with Republican Darrell Issa before the meeting. Sherman’s contribution to the Caucus discussion was described this way by Ryan Grimm:
Sherman spoke out against the bill during the caucus meeting, arguing that billions of dollars would flow to foreign investors, that oversight was lax and that limits on executive compensation were too weak. Rep. Joe Baca (D-Calif.) said he was leaning toward a no vote, too.
The House vote on the bill is scheduled to take place after a four-hour debate, beginning at 8 a.m. on Monday.
Whether or not this bill will ultimately “work” is another question. Paul Krugman, Economics Professor at Princeton University, wrote in the Sunday New York Times:
The bailout plan released yesterday is a lot better than the proposal Henry Paulson first put out — sufficiently so to be worth passing. But it’s not what you’d actually call a good plan, and it won’t end the crisis. The odds are that the next president will have to deal with some major financial emergencies.
Steve Lohr’s report from the Sunday New York Times, discussed the outlook for this plan, as voiced by Robert E. Hall, an economist and senior fellow at the Hoover Institution, a conservative research group at Stanford. Lohr observed:
There was no assurance that the bailout plan would work as intended to ease financial turmoil and economic uncertainty.
Lohr’s article then focused on the opinion of Nouriel Roubini, an economist at the Stern School of Business at New York University:
The $350 billion to $400 billion in bad credit reported by the banks so far could eventually exceed $1.5 trillion, he estimated, as banks are forced to write off more bad loans, not only on more housing-related debt, but also for corporate lending, consumer loans, credit cards and student loans.
The rescue package, if successful, would make the recognition of losses and the inevitable winnowing of the banking system more an orderly retreat than a collapse. Yet that pruning of the banking industry must take place, economists say, and it is the government’s role to move it along instead of coddling the banks if the financial system is going to return to health.
A more unpleasant perspective appeared in an editorial published in the September 25 edition of The Economist:
If the economics of Mr Paulson’s plan are broadly correct, the politics are fiendish. You are lavishing money on the people who got you into this mess. Sensible intervention cannot even buy long-term relief: the plan cannot stop house prices falling and the bloated financial sector shrinking. Although the economic risk is that the plan fails, the political risk is that the plan succeeds. Voters will scarcely notice a depression that never happened. But even as they lose their houses and their jobs, they will see Wall Street once again making millions.
Whatever your definition of “success” might be for this plan, the experts agree that things aren’t going to return to “normal” for a long time, if ever.
Money Falling From The Sky
November 17, 2008
The debate concerning a possible bailout of the “big three” automakers (General Motors, Ford and Daimler Chrysler) has now reached the House of Representatives. House Minority Leader, John Boehner (Republican from Ohio) has voiced his opposition to this latest bailout, indicating that it will not receive much support from Congressional Republicans.
In the words of Yogi Berra, we are experiencing “déjà vu all over again”. This process started with the plan of Treasury Secretary Henry Paulson, to bail out banks and other financial intuitions holding mortgages of questionable value, at a price to the taxpayers in excess of $700 billion. Back on September 22, when that bailout bill (now known as TARP) was being considered, Jackie Kucinich and Alexander Bolton wrote an article for TheHill.com, discussing Republican opposition to this measure. Their article included a prophetic remark by Republican Congressman Cliff Stearns of Florida:
Yet, “bailout after bailout” is exactly where we are now. On November 15, T-Bone Pickings appeared on NBC’s Meet the Press. Tom Brokaw asked T-Bone Pickings for his opinion on the proposed “Big Three Bailout”. The response was:
Once again, we are presented with the need to bail out yet another American industry considered “too big to fail”. However, this time, we are not being asked to save an entire industry, just a few players who fought like hell, resisting every change from rear-view mirrors, to fuel injection, seat belts, catalytic converters, air bags and most recently, hybrid technology. Later on Meet the Press, we heard the BBC’s Katty Kay quote a rhetorical question from unidentified “smart economists” that included the magic word:
Later on the CBS program, Face The Nation, Massachusetts Congressman Barney Frank, Chairman of the House Financial Services Committee, used similar logic to that expressed by Katty Kay, when he stated:
The magic word “shock” is once again playing an important role for the advocates of this newest rescue package. I was immediately compelled to re-read my posting from September 22, concerning the introduction of the Paulson bailout plan, entitled: “Here We Go Again”. At that time, I discussed Naomi Klein’s 2007 book, The Shock Doctrine: The Rise of Disaster Capitalism. Klein’s book explained how unpopular laws were enacted in a number of countries around the world, as a result of shock from disasters or upheavals. She went on to suggest that some of these events were deliberately orchestrated with the intent of passing repugnant laws in the wake of crisis. She made an analogy to shock therapy, wherein the patient’s mind is electrically reformatted to become a “blank slate”. Klein described how advocates of “the shock doctrine” seek a cataclysmic destruction of economic order to create their own “blank slate” upon which to create their vision of a “free market economy”. She described the 2003 Iraq war as the most thorough utilization of the shock doctrine in history. Remember that this book was released a year before the crises we are going through now.
Ms. Klein’s article, “In Praise of a Rocky Transition” appeared in the December 1, 2008 issue of The Nation. She discussed Washington’s handling of the Wall Street bailout, characterizing it as “borderline criminal”. Would the financial rescue legislation (TARP) have passed if Congress and the public had been advised that the Federal Reserve had already fed a number of unnamed financial institutions two trillion dollars in emergency loans? Naomi Klein expressed the need for the Obama Administration to stick with its mantra of “Change You Can Believe In” as opposed to any perceived need to soothe the financial markets:
The Obama Administration would be wise to heed Ms. Klein’s suggestions. It would also help to seriously consider the concerns of Republicans such as John Boehner, who is apparently not anxious to feed America another “crap sandwich”.